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Fastenal Company (FAST - Free Report) is riding high on robust market demand, coupled with growth in industrial vending business and existing Onsite locations. Moreover, the company’s focus on FAST Solutions bodes well for its future earnings prospects.

Shares of Fastenal have gained 15.8% in the past year, comparing favorably with its industry’s growth of 15%. Also, earnings estimates for 2018 have moved 0.8% north over the past 30 days, signaling analysts’ optimism surrounding the stock’s earnings prospect.

Catalysts Driving Growth

Fastenal benefits from robust end-market demand and its core product offerings, namely industrial vending process and Onsite location. The compnay has adopted FAST Solutions, an industrial vending process that has the potential to revolutionize the industrial distribution system and increase profitability. The company installs vending machines at the customer’s location and keeps it filled with products they need.

Robust construction market, especially the non-residential one, is one of the major tailwinds for Fastenal’s performance over the past few quarters. During the third quarter, the company posted higher earnings and revenues on a year-over-year basis. Its top and bottom lines grew 13% and 38%, respectively, courtesy of sustained strength in most of its end markets, as well as strong momentum in vending machine installations and onsite locations.

Although the company’s daily sales growth was slightly lower than the prior-year quarter, the figure improved 13.5% during the month of September. Also, the reported figure increased 13.7% and 12% on a year-over-year basis and in the month of August and July, respectively.

Daily sales of Fastener products (mainly used for industrial production and accounting for approximately 34.7% of third-quarter sales) rose 10.8% in the quarter. Non-fastener product daily sales (mainly used for maintenance and representing 65.3% of the quarterly sales) increased 14.9% year over year.

Fastenal’s sales have been driven by an increased installation of industrial vending machines over the past few quarters. Sales through vending devices continued to grow at a double-digit pace, both in the first nine months and third quarter of 2018. Also, the company’s signings of industrial vending devices grew more than 13% in the first nine months of 2018. In fact, its installed device count increased 14% in the same period.

Moreover, a consistent increase in on-site locations strengthens Fastenal’s market share and boosts quarterly numbers. As of Sep 30, 2018, the company had 828 active sites, reflecting 49.2% growth from a year ago.

However, negative customer/product mix as a result of faster growth of lower-margin national accounts and lower proportion of higher margin fasteners have been the dampeners of Fastenal’s gross margin since the past two years. In the first nine months of 2018, gross margins declined 90 basis points year over year due to tough comparison, along with product and freight inflation.

Armstrong Flooring, EMCOR and Jacobs’ earnings for the current year are expected to increase 114.3%, 20%, and 35.2%, respectively.

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